Having to borrow money isn’t necessarily a bad thing, and it can even be critical at times, especially during times of emergencies such as a sudden medical need or household repairs. However, not managing borrowed money responsibly is what leads a supposedly manageable debt to snowball into a larger financial crisis, which can put the borrower in a debt trap. A debt trap is a situation where their debt has grown far more than their means to pay it.
One way to avoid falling into a debt trap is to be discerning of the terms included when you borrow money, especially considering how easy it can be to borrow money online in the Philippines. This means doing your research first and choosing loans that suit your particular circumstances and financial means to reduce the risk of defaulting. It also means avoiding dodgy lenders and loan products that come with high interest rates, hidden fees, or unreasonable repayment terms.
Maya understands that Filipinos need access to reliable and safe credit, and the fact that every borrower has unique financial needs. This is why we offer Maya Easy Credit and Maya Personal Loan, allowing you to choose the lending solution that best suits your individual circumstances.
Maya Easy Credit lets users borrow up to PHP 30,000 in credit, which they can transfer to Maya Wallet once approved or use as a source of extra funds when paying with Maya for online purchases or scanning to pay via QR Ph. Its simplicity and ease of repayment make it the perfect entry-level loan for users who need to augment their cash flow urgently but don’t have access to other types of credit.
Meanwhile, those who need higher loan amounts with flexible payment terms can opt for Maya Personal Loan instead. Maya Personal Loan gives access to up to PHP 250,000 to be paid within a 6- to 24-month period, depending on the borrower’s choice. This could work best for those in need of larger funding for major purchases but want to make payments more manageable.
Choosing the right loan with terms that suit your situation best is a must to avoid debt traps, but you should also build proper financial habits to ensure you can manage any borrowed money responsibly. Here are some additional tips to avoid falling into debt traps.
1. Create a Realistic Budget
It’s always a great habit to create a monthly budget to keep your spending within limits, but it’s even more important to do so if you’ve just borrowed money or taken out a loan. Adjust your budget to prioritize essential needs such as rent, utilities, and groceries, and cut out unnecessary expenses to make room for your monthly debt repayments. A well-structured budget also ensures that you’re only spending the money you have, thus avoiding more debt piling on top of your outstanding ones.
To help with budgeting, take advantage of budgeting tools such as expense tracker apps that let you categorize your spending so it’s easier to see where most of your money is going. You can also utilize features that come with your bank or e-wallet app, such as the transaction history tool, to monitor your spending and to apply limits or controls to deter yourself from spending beyond the budget you set.
2. Borrow Only What You Can Repay Comfortably
Borrowing beyond your repayment ability is a surefire way to get yourself into a debt trap. To avoid such trouble, only take out loans or debt that’s within your means to pay. Also take into account interest rates and other fees to get a clear picture of how much a potential debt will impact your finances. In addition, if you own a credit card and have been using it to charge your purchases during financial emergencies, then make sure you don’t max out your limit to avoid high-interest charges and make repayment much more manageable.
3. Understand Your Debt’s Terms and Fees
Debt from different sources can carry varying terms, so make sure you’ve understood the terms and fees associated with each one of yours. In particular, pay attention to the interest rate, repayment period, monthly payment amount, and other fees that come with the debt or loan. Knowing as much helps avoid unpleasant surprises when making monthly payments and can help guide you in making informed financial decisions during the repayment period.
It’s a good thing that Maya provides an easy-to-use credit calculator for Maya Easy Credit and Maya Personal Loan, which will allow you to easily calculate your monthly payments and understand the total cost of your debt over time.
4. Borrow Money Only for Essential Needs
After successfully paying off a debt, it can sometimes be tempting to take on a new one for less important matters such as vacations or luxuries just because you can. Doing so can lead to a bad habit of accumulating debt, which can severely limit your ability to achieve financial security in the future. Thus, reserve borrowing for important matters or emergencies only. This will help you avoid getting stuck in a debt cycle and enjoy more financial freedom.
5. Set Up an Emergency Fund
Debt traps sometimes happen because people take on more debt just to repay their existing ones. One way to avoid this is to build an emergency fund that can be used to cushion your finances for any emergency without you having to resort to borrowing more money. Strive to set aside a small amount from your monthly budget to put in a separate emergency fund account. Even those small contributions can add up over time and protect you from taking on more unsustainable debt should you encounter any financial crisis in the future.
Managing your debts responsibly allows you to inject much-needed flexibility into your cash flow without creating a lasting negative impact on your finances. The next time you find yourself in debt, make sure you keep the tips above in mind so that you can responsibly handle the borrowed money and repay it without fail.
